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Job Market paper:

“Career Uncertainty and Dynamic Incentives”
 

Abstract. Career concerns are known to provide incentives even when performance-based compensation is not feasible. Previous literature assumes that ability is equally valuable everywhere. I analyze the model where ability is career-specific and individuals can escape bad reputation by changing their careers. The possibility of changing the career makes collection of reputational rewards less likely and therefore dampens incentives. However, I show that the wage becomes more sensitive to the reputation since the market anticipates the workers with good career matches to exert more effort. This effect countervails the direct incentive-weakening effect of career uncertainty. In fact it may be so strong that the expected marginal return on the reputation increases and the worker who is less certain about her career prospects puts in more effort as a result. I show that equilibrium effort is higher for workers facing moderate career uncertainty if their effort is sufficiently responsive to incentives. In general, both oversupply and undersupply of effort can occur in the equilibrium. One way to control the strength of reputational incentives is to manipulate the timing of information release: delaying the release of performance data weakens the incentives and can help avoiding excessive effort supply early in the career.

Working Papers:

“Growth And Trade in a Model With Investment-Specific Technological Change,” December 2004

Abstract. I set up a semi-endogenous growth model, where the driving force of technological progress is replacement of old tools by new ones. I explore the implications of this hypothesis (capital-embodiment of growth) for international development. One strong prediction is that developed countries have a comparative advantage in producing capital goods. This implies that trade policies of less developed countries are key determinants of their growth prospects. The patterns of trade observed in the world are generally consistent with my theoretical predictions.

“Specialization under Uncertainty,” May 2004, joint with Natalia Kovrijnykh

Abstract. We study the choice of specialization under uncertainty, where the reasons for less than perfect specialization are 1) risk-aversion, 2) decreasing returns in human capital accumulation, and 3) substitutability/complementarity between output products. We build a general equilibrium two-sector model with two sector-specific skills, where workers value goods produced in the two sectors according to a CES utility function, and uncertainty comes from sector-specific productivity shocks. For a simple distribution of shocks, we show that in a competitive equilibrium there are always some workers who fully specialize, and for a big enough variation in the productivity shocks, there will be some workers who acquire both skills, as long as the elasticity of substitution between two goods is different from one. Second, we prove that the competitive equilibrium is generally inefficient, and generates too little specialization compared to the first-best allocation. Third, we argue that the constrained optimum (where no transfers among workers can be used) results in even less specialization than the competitive equilibrium. In addition to the analytical results for the simple case, we also provide numerical solutions of equilibrium skill distribution for various joint distribution of productivity shocks. Finally, considering modifications of the original model, we show that a competitive equilibrium will involve more specialization if capital can flow from one sector to another prior to shocks realization, and less specialization if capital flows ex post.